This Week's Focus: Tsipras' epic

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Monday, 29 of June 2015

This Week's Focus: Tsipras' epic

What a few days ago seemed improbable, it is now happening. When closer than ever were Greece and the institutions agree to close the refinancing of the Greek bailout, the government of Tsipras announced the submission of the agreement to a referendum, which officially precipitated the breakdown in negotiations.

The Greek referendum is called for next Sunday, July 5, so if IMF should not grant an extension on payments due on June 30, Greece will default. The consequences of a default and possible extension to (cross-default) the rest of the Greek debt, leaving an apocalyptic near-term outlook. The exposure of eurozone states Greece is:

In case of allowing Greece into default on its debt, the eurozone is at risk of falling back into recession, as it would face economic losses of more than 3% of GDP, when the growth forecast for 2016 is only close 2%.

The interest in keeping Greece in the Euro area is not only financial, but also geostrategic: States are key stakeholders that Greece does not depart from Western institutions (NATO member) and feels attracted to Eastern giants, especially Russia.

The behavior of the currency markets is a demonstration that this time, efforts to keep the situation under control are working, with concerted currency markets interventions supporting the Euro and the ECB all the ammunition available to support peripheral bonds prices and avoid contagion. Thus, the most noticeable effects remain in the stock markets.

It remains to be seen what effect the capital controls and limiting cash withdrawals to 60 € per day may have in Greek citizens ahead of its ruling on the referendum. Sometimes, when someone sees that all you have is at risk, you choose to maintain the status quo.

We hope that during the week the respective position become more apparent and we're likely to return to the negotiating table. It is possible that at the end of the day, everything has been staged to save the face of the Greek government and EU leaders at their respective constituencies.